Introduction

The functions of the Comptroller and Auditor of India are derived mainly from the
provisions of Article 149 to 151 of the Constitution of India. Article 149 provides that the
Comptroller and Auditor General shall perform such duties and exercise such powers in
relation to the accounts of the Union and of the States and of any other authority or body
as may be prescribed by or under any law made by Parliament and until provision in that
behalf is so made, shall perform such duties and exercise such powers in relation to the
accounts of the Union and of the States as were exercisable by the Auditor General of
India before the commencement of the Constitution in relation to the accounts of the
Dominion of India and of the provinces respectively. Under these transitional provisions
the Comptroller and Auditor General continued to perform the duties and exercise the
powers in relation to the Accounts of the Union and of the States as provided in the
Government of India (Audit and Accounts) Order 1936, as adopted by the India
(Provisional Constitution) Order, 1947 till the Comptroller and Auditor General's (Duties,
Powers and Conditions of Service) Act, 1971 (hereafter called the Act) was enacted by
the Parliament. TheAct which came into force on 15th December, 1971 has been
amended in 1976, 1984, 1987 and 1994. The Act is a comprehensive legislation framed
under Article 148(3) and 149 of the Constitution. It prescribes (a) the salary and other
conditions of service of the CAG and (b) his duties and powers in relation to the
accounts and audit of accounts of the Union, the States, the Union Territories and other
authorities and bodies. No law of State Legislature can cast any duties or confer any
powers upon the CAG or his representatives. Likewise the duties and powers of the
CAG prescribed by law made by the Parliament cannot be superseded or abridged by or
under any law made by the State Legislature.

AUDIT FUNCTIONS
The duties of Comptroller and Auditor General includes audit of:
All expenditure from the Consolidated Fund of India of Union,of each State and of
each Union Territory having a Legislative Assembly with the objective to ascertain
whether the moneys shown in the accounts as having been disbursed were legally
available for and applicable to the service or purpose to which they have been applied
or charged and whether the expenditure conforms to the authority which governs it;
All transactions of the Union and of the States/Union Territory having a Legislature
relating to Contingency Funds and Public Accounts;
All trading, manufacturing, profit and loss accounts and balance-sheets and other
subsidiary accounts kept in any department of the Union or of a State and in each
case, to report on the expenditure, transactions or accounts so audited by him;
Receipts and expenditure of bodies or authorities substantially financed from Union
or State revenues;
The grants or loans given to other authorities or bodies;
Revenue of the Union and of the State Governments;
Accounts of stores and stock;
Government Companies and Corporations under the Company's Act 1956 read with
CAG's (DPC) Act, 1971 ; and Accounts of other authorities or bodies as per their
statute or upon request by the Governor of a State or the Administrator of a Union
Territory having a Legislative Assembly.
ACCOUNTING FUNCTIONS

The Accounts Offices are responsible for:

Compilation of accounts of the State Government;
Preparation of the annual accounts of the States Governments and Union Territories
having a Legislative Assembly; and
Rendering accounting information and assistance to the State Governments.

AUDIT REPORTS
CAG presents a number of Audit Reports on the basis of audit of the Union Government and
the State Governments to the Parliament and State Legislature respectively under Article 151
of the Constitution of India. In addition, CAG certifies the Appropriation Accounts and
Finance Accounts of the Union Government and of the State Governments and forwards them
to the President / Governors of States for being laid on the Table of Parliament and State
Legislature respectively. CAG also submits Separate Audit Reports on all statutory
corporations and autonomous bodies, for which he is the sole auditor. The sectors under
which CAG presents one or more volumes of his Audit Reports to Parliament are:
Civil;
Autonomous Bodies;
Scientific Departments;
Defence Services;
Railways;
Direct Taxes;
Indirect Taxes; and
Commercial.
CAG presents the following reports to State Legislature and Union Territories with
Legislative Assemblies in one or more volumes:
Civil;
Revenue; and
Commercial.

AUDIT IN PURSUANCE OF LAW, STANDARDS AND GUIDELINES

Constitutional provisions
Comptroller and Auditor General of India derives his position and authority
in relation
to audit of expenditure and receipt of both the Union Government and the
State
Governments from the Constitution. Article 149 of the Constitution
prescribes that
the Comptroller and Auditor General of India shall perform such duties and
exercise
such powers in relation to the accounts of the Union and of the States, as
prescribed
by law made by the Parliament. The Constitution also prescribes that the
accounts
 of the Union and of the States shall be kept in such form as the President
may, on
the advice of the Comptroller and Auditor General of India, prescribe.

Enactments by Parliament
In pursuance of the Constitution, the Parliament established the law defining
duties,
powers and conditions of service of the Comptroller and Auditor General of India
in 19712. This Act inter alia prescribes the duties and responsibilities of the
Comptroller and Auditor General of India in respect of audit of the expenditure of
the Union and State Governments, autonomous bodies under them, bodies and
authorities in receipt of grants-in-aid from the Governments, revenue receipts,
stores and stocks and Government Companies and Corporations.
With a view to ensuring the accountability of the executive of the Government
Companies and Corporations to the Parliament and State Legislature, the Act
envisages that the Comptroller and Auditor General of India shall have powers to
conduct the audit of the accounts of the Government Companies and
Corporations3.
These provisions are consistent with the Companies Act, 1956 and the acts
establishing the Corporations. The Companies Act, 1956 empowers the
Comptroller and Auditor General of India to:
appoint/ re-appoint the auditors of a Government Company;
direct the manner in which accounts shall be audited;
give such instructions to the auditors in regard to any matter relating to
audit;
to conduct a supplementary or test audit of the accounts; and
to comment upon or supplement the audit report of the statutory auditors.
The Act also prescribes the authority of the Comptroller and Auditor General of
India in respect of production of documents and information by the audited
entities. The Act provides the authority to the Comptroller and Auditor General of
India to determine the manner and scope of audit.
As per the CAG's (DPC) Act, 1971 the Comptroller and Auditor General shall be
responsible for compiling and keeping the accounts of the Union and of each
State, any particular services or departments of the Union. Under the Act, the
President/ Governor after consultation with the Comptroller and Auditor General
can relieve him from the responsibility for compiling of such accounts.

Auditing Standards
With a view to maintaining high quality of audit, the Comptroller and Auditor
General of India has promulgated Auditing Standards that prescribes the
standards of professional conduct of the officers and staff of the Indian Audit and
Accounts Department, both in terms of professional competence and ethics. It
also prescribes the principles of the entire spectrum of audit. The Standards are
consistent with the Act prescribing the duties and powers of the Comptroller and
Auditor General of India. These are also consistent with the contemporary global
best practices, including those of International Organisation of Supreme Audit
Institutions (INTOSAI). Apart from the Standards of professional conduct, the
Auditing Standards also lay down the quality assurance system within the
institution, overall framework for the steps to be followed by auditors in
conducting and managing audit work
and framework for reporting the result of audit.
With a view to ensuring that the audit works within the Indian Audit and Accounts
Department conform to the standards set for itself, the Comptroller and Auditor
General of India has issued standing orders and various guidelines.

Standing orders
To give effect to the Auditing Standards and his accounting responsibilities,
Comptroller and Auditor General of India has issued three Manuals of Standing
Orders MSOs; namely (i) M.S.O. (Audit), (ii) M.S.O. (Accounts) and (iii) M.S.O.
(Admn.).
Manual of Standing Orders (Audit) deals with general principles and procedure
for audit, reporting the results of audit and preparation of Audit Reports for the
Parliament and State Legislatures. The Manual provides detailed instructions for
various types of audits viz. audit of expenditure, receipts, stores and stock,
commercial accounts, and non-commercial autonomous bodies etc. It also
contains supplementary instructions for certification, compliance and
performance audits, with detailed instructions for audit of establishment
expenditure, contingent expenditure, grants-in-aid, pension, contracts, deposits,
service provident and other funds, World Bank and other externally assisted
projects etc. besides audit of computerised system, public works, and forest
accounts etc.
Manual of Standing Orders (Accounts) deals with general principles and
procedure for classification of transactions between capital and revenue,
procedure of accounting of loans and advances, deposits, public works, forests,
provident fund, pensions etc. besides form and contents the monthly accounts
and Finance and Appropriation Accounts. Manual of Standing Orders (Admn.)
consists of organisational set up and service matters, various cadres within the
Department, recruitment rules, promotion, departmental examinations, financial
and administrative powers of subordinate offices etc.

Guidelines and practice notes

In the light of widely varying, complex and vast auditee environment, CAG has
issued detailed subject and technique specific guidelines for each sector of audit
viz. Civil, Commercial, Defence, Post & Telecommunications and Railways, etc.
These guidelines contain step-by-step procedure/methodology and techniques
for conduct of audit in pursuit of the Act and Auditing Standards established for
conduct of audit as well development of the professional competence of the
officers and staff.

Consultative procedure
While the audit is conducted in the background of the Constitution of India and
the Act made there-under; CAG has also established a framework of a
consultative arrangement for audit. The inputs/ suggestions by the Public
Accounts Committee and Committee on Public Undertakings of the Parliament
are also taken into account for audit planning.

Audit Advisory Board

To broad-base the input for audit planning and for setting overall audit
objectives, an Audit Advisory Board has been set up under the Chairmanship of
Comptroller and Auditor General of India, which consists of eminent persons in
diverse fields.
Deputy Comptroller and Auditors General being the functional heads of different
functions are ex-officio members of Audit Advisory Board.
Audit Board mechanism
Audit Boards are set up to undertake comprehensive appraisals of the
performance of the Government Companies and Corporations. Audit Boards are
constituted with Deputy Comptroller and Auditor General of India (Commercial)
as ex-officio Chairman. The Secretary of the Board and two - three Principal
Directors are full time members. In addition, the respective Ministry/ Department
controlling the PSU appoints two part-time technical members in consultation
with CAG.
Government Accounting Standards Advisory Board
In August 2002, CAG of India established a Government Accounting Standards
Advisory Board (GASAB) under the chairmanship of Deputy Comptroller and
Auditor General. The members of the Board include Controller General of
Accounts, Financial Commissioner Railways, Controller General of Defence
Accounts, Additional Secretary (Budget), Government of India, Deputy Governor
of RBI and President of ICAI, Director General of NCAER and Principal Finance
Secretaries of four States (by rotation). Director General (AEC) in the office of
CAG is the Member Secretary of the Board. The mission of the Government
Accounting Standards Advisory Board is to establish and improve standards of
State and local Governmental accounting and financial reporting that will result
in useful information for users of financial reports. GASAB has issued five
exposure drafts on the following subjects:
1. Guarantees given by Governments;
2. Cash flow statements;
3. Accounting and classification of Grants-in-aid;
4. Presentation of financial reports; and
5. Components of financial reports issued for Governments.

Audit Committees
Audit committees, comprising of representatives of the Audit Department and
the
Government Departments are constituted in the Government Departments. The
committees follow up and monitor compliance to audit observations.
Organisation structure
 Case Laws

I. Arvind Gupta Vrs. Union of India (2013) Supreme Court Cases 293

Issue

Powers of CAG to Conduct Performance Audit

In this case decided by the Supreme Court, the Petitioner submitted that CAG of India
has no power to give performance audit report and the provisions in the Regulations of
Audit and Accounts, 2007 framed under the CAG(DPC)Act, 1971 empowering the CAG
to conduct performance audit is violative of the Constitution.

The Supreme Court held that the CAG's functions to carry out examination into
economy, efficiency and effectiveness with which the Government has used its
resources, is in-built in the 1971 Act. Performance Audit Reports prepared under the
Regulations have to be viewed accordingly. The Court observed no unconstitutionality in
the Regulations.

Extracts of the Judgement

Writ Petition(C) No. 393 of 2012, decided on October 1, 2012

1. We have heard Mr. Santosh Paul, learned counsel for the petitioner. The learned
counsel for the petitioner submits that the Comptroller and Auditor General of India
(CAG) has no power to give performance audit report and the Regulations on Audit and
Accounts, 2007 (for short the Regulations) framed under the Comptroller and Auditor
General's (Duties, Powers and Conditions of Service) Act, 1971 (for short the 1971 Act)
empowering CAG to conduct performance audit are violative of the Constitution.

2. Article 149 of the Constitution of India provides that CAG shall perform such duties
and exercise such powers in relation to the accounts of the Union and of the States and
of any other authority or body as may be prescribed by or under any law made by
Parliament. In pursuance of Article 149 of the Constitution, the 1971Act has been
enacted. Amongst other provisions in the 1971 Act, Section 16 provides that:

16 Audit of receipts of Union or of States It shall be the duty of the Comptroller and
Auditor General to audit all receipts which are payable into the Consolidated Fund of
India and of each State and of each Union Territory having a Legislative Assembly and to
satisfy himself that the rules and procedures in that behalf are designed to secure an
effective check on the assessment, collection and proper allocation of revenue and are
being duly observed and to make for this purpose such examination of the accounts as
he thinks fit and report thereon.

3. CAG's function to carry out examinations into economy, efficiency and effectiveness
with which the Government has used its resources is inbuilt in the 1971 Act.
Performance audit reports prepared under the Regulations have to be viewed
 accordingly. We find no unconstitutionality in the Regulations. Moreover, Article 151 of
the Constitution provides that the reports of CAG relating to the accounts of the Union
shall be submitted to the President, who shall cause them to laid before each House of
Parliament and the reports relating to the accounts of a State shall be submitted to the
Governor of the State who shall cause them to be laid before the legislature of the State.
The audit reports which are submitted by CAG are, thus, subject to scrutiny by
Parliament or the legislature of the State, as the case may be.

4. The writ petition is wholly misconceived and is dismissed accordingly.

II. Reghu Nath Kelkar Vrs. Union of India and others in The High Court of Bombay

Issue
Powers of CAG regarding time, scope and extent of audit
In this case decided by the High Court of Bombay, an allegation was made about the
failure of the CAG to conduct a comprehensive audit. The Court considered scope of
Section 23 of the CAG (DPC) Act. The Court observed that the time, scope and extent of
audit are all matter which fall within the jurisdiction of the CAGand is not a matter on
which Court ought to tread.

Extract of Judgement

9. In so far as prayer Clause (b) of the Petition is concerned, an affidavit has been
filed on behalf of the Comptroller and Auditor General in which it has been stated that
receipts and disbursements under the Market Stabilizations Scheme are duly budgeted
in the receipt and expenditure budget which is subject to parliamentary control. The
account of the Ministry of Finance and appropriation account of the Government of India
are audited at 'regular frequency' by the Comptroller and Auditor General. Under Section
23 of the Comptroller and Auditor General (Duties, Powers and Conditions of Service)
Act, 1971 the scope and extent of audit is determined by the Comptroller and Auditor
General. The Comptroller and Auditor General reports his findings to Parliament by
submitting audit reports under Article 151 of the Constitution. The Reserve Bank of India
has clarified that funds collected from the sterilization of liquidity by the Market
Stabilization Scheme form part of the Consolidated Fund of India and are hence,
deemed to be audited by the Comptroller and Auditor General.

10. The Petitioner, however, relies upon a response received to a query under the
Right to Information Act in which it has been disclosed by the Comptroller and Auditor
General on 19th June, 2008 that no specific audit in respect of the borrowings of the
Central Government under the Market Stabilization Scheme was conducted since 2004
nor was there any specific audit of the application of funds borrowed there under. The
Comptroller and Auditor General has also clarified that no audit has been conducted in
respect of the currency and Gold Revaluation Account in the balance-sheet of the
Reserve Bank of India since the accounts of the Reserve Bank of India do not fall under
the audit jurisdiction of the Comptroller and Auditor General in response to the query for
information that no specific audit was conducted either in respect of the borrowings or
the application of funds under the Market Stabilization Scheme since 2004 does not in
our view detract from what has been stated in the affidavit filed on behalf of the
Comptroller and Auditor General. The affidavit discloses that under Section 23 of the Act
the scope and extent of audit is determined by the Comptroller and Auditor General and
that the accounts of the Ministry of Finance as well as the appropriation account of the
Government of India are audited at regular frequency by the Comptroller and Auditor
 General. The timing, scope and extent of audit are all matters which fall within the
jurisdiction of the Comptroller and Auditor General and this is certainly not matter on
which the Court ought to tread. There is neither a constitutional nor statutory dereliction
of duties by the Comptroller and Auditor General and it is undoubtedly for the
Comptroller and Auditor General to consider whether and if so to what extent a specific
audit should be undertaken.

III. National Dairy Development Boards Vrs. CAG of India.

in The High Court of Delhi
W.P. (Civil) 4834 OF 1998
Decided on: 27-1-2010
(Before Hon'ble Justice Sanjeev Khanna)
Powers of CAG to conduct audit
In this case decided by the Delhi High Court, the powers of the CAG to conduct audit
under section 14, 15 and 19 of the CAG (DPC) Act was considered. The Petitioner
challenged the authority of the CAG to invoke and exercise the powers under Section 14
(2) of the 1971 Act to conduct audit of accounts of the NDDB which is governed by its
ownAct viz.NDDBAct, 1987, and which has a provision of overriding effect to
theNDDBAct over any other law. The Court laid down the following preposition:-

1. CAGAct is a SpecialAct as distinguished from a GeneralAct.

2. CAG's power to audit under Section 14 (1) can be curtailed, conditional or even
prohibited under any law applicable to the Body orAuthority.
3. Section 14 (2) is an independent section which will apply once the conditions
mentioned in the said Section are satisfied and the fact that the body or authority cannot
be subject to audit under Section 14 (1) is irrelevant.
4. Section 15 confers power to undertake scrutiny of the accounts/records of the
sanctioning authority to ensure that proper procedure was followed while sanctioning
any grant/loan.
5. Section 15 and Section 14 (2) are independent sections and come into operation
when the pre conditions mentioned therein are satisfied. Section 15 cannot be read to
override Section 14 (2) or vice-versa.
6. The provisions of the Section 19 are clarificatory in nature. Section 19 (2) does
not override the provisions of Section 14 (2) and other provisions of the CAG (DPC) Act.
Section 19(2) protects the power and right given to the CAGto audit accounts of
Corporations under theLawmade by Parliament by which they are established. This
means that CAG can conduct audit under Section 14 (1), 14 (2) or 15 of theCAGAct in
respect of any corporation when under the respective legislation annual financial audit is
not undertaken by the CAG.
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IV. Arun Kumar Aggarwal Vrs. Union of India,in the Supreme Court of India

Issue
CAG Audit Report as a basis for grant of relief or initiating action
In this case the Supreme Court considered, whether a CAGAudit Report by itself can be
accepted by the Court to grant relief or as a basis for initiating action. The Court held
that CAG's Report is always subject to scrutiny by the Parliament and it is for the
Parliament to decide whether after receiving the report to make its comments on the
CAG's report.

Extracts of the Judgement

We have referred to the report of the CAG, the role of the PAC and the procedure
followed in the House, only to indicate that the CAG report is always subject to scrutiny
by the Parliament and the Government can always offer its view on the report of the
CAG.

The question that is germane for consideration in this case is whether this court can
grant reliefs merely placing reliance on the CAG's report. The CAG's report is always
subject to parliamentary debates and it is possible that PAC can accept the ministry's
objection to the CAG report or reject the report of the CAG. The CAG, indisputably is an
independent constitutional functionary, however, it is for the Parliament to decide
whether after receiving the report i.e. PAC to make its comments on the CAG's report.

We may, however, point out that since the report is from a Constitutional functionary, it
commands respect and cannot be brushed aside as such, but it is equally important to
examine the comments what respective ministries have to offer on the CAG's report. The
Ministry can always point out, if there is any mistake in the CAG's report or the CAG has
inappropriately appreciated the various issues.